Launching a new report on South Africa’s fiscal crisis, the Centre for Development and Enterprise (CDE) has welcomed President Ramaphosa’s renewed commitment to economic growth and fiscal reform and urged him to stay on this path.

In his Opening of Parliament Address last Thursday the President promised to “manage public finances with a view to stabilising debt” and to “place inclusive economic growth at the top of the national agenda.”

CDE today released ACTION THREE: Fix the fiscal crisis, the third report in its AGENDA 2024 series which sets out a number of catalytic actions to reverse South Africa’s decline.

CDE notes that South Africa’s debt-to-GDP ratio declined from 50 per cent in 1994 to 24 per cent in 2008 but has now risen to 74 per cent.

“Years of large structural gaps between government’s revenues and its spending have wiped out the fiscal progress achieved in the first 15 years of democracy, and the country is now in a much worse position than at the start of the democratic era,” said Ann Bernstein, executive director of CDE.

“South Africa’s position is much closer to that of a business that is insolvent than one that is merely experiencing cashflow problems,” added Bernstein.

While CDE acknowledges that there are no magic bullets for resolving the fiscal crisis, the government of national unity (GNU) must make meaningful progress along two dimensions that would help enormously: improving the quality of spending and pursuing faster economic growth.

CDE believes that government’s current fiscal strategy should be strengthened through seven key actions to make spending more efficient. The GNU should:

1. Refrain from making any new unaffordable spending commitments, including unbudgeted increases to public sector remuneration.
2. Improve the quality and productivity of spending by focusing on core business, eliminating low impact and low productivity activities, and enhancing accountability for service delivery. Institute productivity commissions to identify practical ways to increase service delivery within current budget limits. These processes should be led by Operation Vulindlela.
3. Improve decision-making at the centre of government (see CDE’s ACTION ONEreport on streamlining the presidency to improve decision making in Cabinet, and ACTION TWO on the importance of appointing the right people in ‘mission critical’ positions at the highest levels in the public sector).
4. Swiftly identify and dismiss officials involved in theft and corruption, including the dismissal of officials credibly accused of wrongdoing (see: ACTION TWOreport on a disciplinary tribunal).
5. Pursue much greater value for the hundreds of billions of rands spent on government procurement (see forthcoming CDE report on procurement reform as part of the AGENDA 2024 series).
6. Maximise revenue collection by investing in the enforcement of tax obligations against those who are evading their obligations.
7. Appoint a high level expert task team to relook at the structure and financing of local government. Every year some 10 per cent of the national budget is transferred to municipalities and metros and there is almost universal consensus that this money is not being spent effectively. The President should urgently appoint a task team to recommend actions to be discussed in parliament within six to eight months.

In summary, CDE recommends that the GNU sticks with the current fiscal strategy, and strengthens it further with the series of key interventions outlined here. It is important that this approach is understood as a permanent commitment to fiscal sustainability, not a short term fix.

The second part of CDE’s report echoes and expounds upon the President’s pronouncement that economic growth is paramount, particularly as it relates to stabilising South Africa’s fiscal position.

“Ultimately, the most desirable way to improve the sustainability of public finances is through economic growth. The effect of growth on fiscal sustainability is instantaneous because a growing economy can sustain existing levels of debt more comfortably,” said Bernstein.

“Achieving faster growth is not actually all that hard. It requires a government that is committed to addressing the enormous governance deficiencies that exist – from cleaning up procurement, to sending corrupt officials to jail, to demanding higher standards from public servants. The confidence that would flow from actually doing this would electrify investment and growth,” she added.

For media enquiries and interview requests, please contact Refiloe Benjamin: media@cde.org.za | 011 482 5140.

ABOUT AGENDA 2024: PRIORITIES FOR A NEW GOVERNMENT
AGENDA 2024, based on CDE’s extensive policy work and recent consultations with experts, business leaders, former public servants and academics, sets out to answer what is by far the most important question facing South Africa: what can a new government do to get the country back on track after 15 years of stagnation and decline?

CDE’S AGENDA 2024 identifies five urgent priority areas that the new government needs to focus on: fixing the state; driving growth and development by freeing up markets and competition; building a new approach to mass inclusion; tackling the fiscal crisis; and strengthening the rule of law.

CDE has already produced an action plan to streamline government, which can be accessed here. It has also released a plan to ensure that every person in a ‘mission critical’ job is fit-for-purpose, which can be accessed here. Over the coming weeks and months, CDE will be releasing a series of reports on the other four priority areas set out above.